29May13

Ice levels, rule changes to boost Arctic northern sea route

Shipping along the Arctic northern sea route is set to grow more than 30-fold over the
next eight years and could account for a quarter of the cargo traffic between Europe
and Asia by 2030, experts said on Wednesday.

With global warming thawing sea ice, the route, which runs along Russia's northern
coast and links Europe with ports in East Asia, is opening for longer and longer each
year.

Russia is also easing regulations to accommodate more vessels aiming to spur use of
the still fledgling route which can cut travel time between Europe and Asia by up to 40
percent.

"Russia clearly sees the opportunity and is trying to take advantage of it," said Mikhail
Belkin, an adviser at Atomflot, the operator of Russia's nuclear icebreaker fleet.

"The northern sea route is not a rival to the Suez Canal, but it's a good seasonal
complement... and has the potential to grow very fast."

Around 1.25 million metric tons (1.38 million tons) of cargo traversed the route last
year, a tiny figure compared to the Suez Canal's 740 million metric tons.

But Belkin predicted a rise to 1.5 million metric tons this year and 40 million metric tons
by 2021.

"Crossings (between Europe and Asia) will account for 15 million metric tons, LNG from
the Yamal Peninsula for another 15 million and oil cargo out of that area for another 10
million," said Belkin, whose icebreakers need to accompany most vessels along the
route.

The gas is expected to come from Yamal, which is being jointly developed by Novatek
and Total, while the oil is expected to come from Gazprom's Novoportovskoye field in
Siberia.

A recent deal by ExxonMobil to partner with state-controlled Rosneft to explore for oil
on 150 million acres in the Chukchi, Kara and Laptev seas could mean further oil for
export.

Ice Levels

Last September, Arctic sea ice reached its lowest level on record and scientists say
there could be an ice-free summer by 2030-2040.

The northern sea route was open around six months last year with an LNG vessel
crossing as late as November and the season could grow to 8 months within a decade.

To lower operating costs, Russia this year will allow vessels without ice classification to
cross during the lightest period of ice, which lasts about two months each year, and has
also reduced draft restrictions, allowing vessels of up to 100,000 deadweight metric
tons to cross.

Jong-Deog Kim, a division director at the South Korean Maritime Institute, predicted
that traffic between Europe and Asia along the route will grow by 6.5 percent a year
and could potentially account for a quarter of all cargo traffic by 2030.

"It's a function of cost, not just the fees charged by Atomflot, but the total cost, from
vessel construction and bureaucracy to the increased insurance cost," Kim said. "For
crude, LNG and condensate, it's actually very competitive right now, but for coal or ore,
not so much."

Atomflot fees vary depending on the customer but tend to be 10 to 15 percent higher
than Suez Canal charges. Yet once the savings from the shorter voyage are factored
in, firms can save as much as 20 percent, Belkin said.

Still, the route has its clear limits. Russia is just starting work on up to 10 relief ports
along the route, search and rescue capability is patchy, commercial weather
forecasting is limited and insurers charge a large premium for operators using the
route.

"It's a given that traffic will increase and probably increase dramatically," said Sturla
Henriksen, director general of the Norwegian shipowners' association. "But the
commercial viability will be limited for quite some time."

[Source: By Balazs Koranyi, Reuters, NY-Aalesund, Norway, 29May13]

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